Debt may be a complicated topic for entrepreneurs to discuss but even Harvard Business Review considers the different instances when debt is good. From being a cheaper form of financing than equity to using the debt to deduct from corporate income taxes, loans may benefit your business in the long run.
However, Joseph Benoit from Entrepreneur.com points out that many entrepreneurs are suffering due to the volatile economy we are experiencing. A smart move right now is to reduce costs, increase revenue, and to start effectively managing business debt:
Review to negotiate or refinance
Before taking out loans, know that there are three different kinds of debt. Determine what you borrowed and review the terms you signed up for. This will help you check if there are ways you can negotiate (or renegotiate).
If it is supplier debt, there is a chance that you may be able to ask for a discount when you buy in bulk. Maybe you might be able to agree on more flexible terms if you highlight your good credit history.
When strategizing your debt management plan, refinancing is also an option. This can be useful if you find the interest rates high, especially if you have better credit profile.
Connect and market
Now is the time to become more visible to your target market. Stay connected with customers by offering discounts to loyal clients and consumers. Boost customer service so that you will remain at the top of their mind. Find ways to gain reviews and testimonials to strengthen social proof and boost trust,
Investing time and money in marketing can help you land more clients and customers. Promoting online is now easier than ever as there are a wide range of creative solutions, and some investment in Facebook Ads or Google Ads might pay off if strategized well.
Do what you can to network and broaden your reach to increase your client base and ultimately, your monthly revenue.
Rethink your expenses
While the previous tip is all about increasing income, also consider decreasing expenses to make way for debt repayments and better company liquidity. This can be from subleasing unused space and scaling down to lower rent.
Maybe there are monthly subscriptions that you can do without, or software that you have not make the most out of in the past few months. Take these into account as you pursue better debt management.
PricewaterhouseCoopers (PwC) urges business owners to ask the following questions when it comes to cost-cutting:
- How can we target investment more precisely to maximize strategic advantage (‘good costs’)?
- How can we cut out the low performing business and inefficient operations (‘bad costs’) that waste resources and hold back returns?
While loans can help jumpstart a business, debt can also easily get out of hand if not handled effectively. The only way to achieve this is if entrepreneurs have a set debt management plan or strategy to ensure that they will not be compromising their cash flow.